[Click e-Stock] "KCC Resolves Undervaluation with Treasury Share Retirement... Target Price Up"

On March 11, NH Investment & Securities raised its target price for KCC from 5.3 million won to 6.8 million won, citing the resolution of undervaluation factors following the announcement of a phased retirement of treasury shares. The investment opinion was maintained as 'Buy'.

Lee Eunsang, an analyst at NH Investment & Securities, stated, "The upward revision of the target price is due to an increase in the valuation multiple," adding, "This reflects the recent confirmation of a phased retirement of treasury shares, which has resolved related uncertainties, as well as expectations for a recovery in the silicone industry and an increase in the value of major listed investment assets."

Following the passage of the third amendment to the Commercial Act, which made it inevitable for KCC to address 17.24% of its treasury shares, KCC announced on March 9 its plan for the phased retirement of these shares. Of the treasury shares held, 77% will be retired by September 2027, while the remaining portion will be disposed of in stages over the next four years for employee compensation purposes. Lee assessed, "This will not only improve earnings per share (EPS), but more importantly, the removal of uncertainties related to treasury shares will lead to a fundamental re-rating of the company's valuation multiple."

The analyst also noted the positive environment being created by the recovery in the silicone industry, which is shifting bargaining power to suppliers. "The global silicone industry has entered a phase of supply chain restructuring, with the closure of Dow's UK factory in the United States and restructuring by Elkem in Norway helping to resolve supply excess," Lee explained. "Having completed vertical integration, KCC is expected to secure visibility for a performance turnaround in its silicone division in this favorable market environment."

In particular, the full enforcement of China’s Value-Added Tax Law and the decline in operating rates for silicon metal are anticipated to put upward pressure on costs, which is expected to create a floor for silicone shipment prices. Lee added, "With Germany’s chemical company Wacker having already implemented preemptive price hikes, KCC is also likely to see an expansion in its margin spread as it raises product prices."

This content was produced with the assistance of AI translation services.